Duterte mulls tax hike for high earners

Similar to China’s tax system 

MANILA, Philippines - Taxing high-income earners more than their middle and poor counterparts is feasible, but the incoming Duterte government will need to be careful not to discourage them from investing.

“That’s feasible and you can calibrate it in such a way that you will not incur revenue losses,” Finance Undersecretary and chief economist Gil Beltran said in an interview.

Incoming president Rodrigo Duterte bared yesterday he intends to raise tax rates for those earning high, and lower those for the rest. He did not give details.

As it is, the current tax system is already “progressive” and simply reflects what Duterte wants to achieve, Internal Revenue commissioner Kim Henares said.

The difference, Henares said, would be on how he plans to reform the tax rates and brackets similar to botched legislative proposals last year.

Under the National Internal Revenue Code, there are seven tax brackets with the lowest charged a rate of 10 percent, while the biggest – at more P500,000 annual income-taxed 32 percent.

Beltran said Duterte’s plan could be similar to China’s tax system, where the highest individual tax rate is pegged at 45 percent.

The country also has seven brackets, but unlike the Philippines where rates increase five percent every step, China has varying increases of five, seven and 10 percent.

“This is consistent with what is required in the Constitution which is a progressive tax rate. This is not discriminatory,” Beltran said.

But he added that one problem he is seeing is the potential the proposal could deter investments.

“These earners are those who have businesses here. The trend now is to lower tax rates so if they see that ours are higher, they could easily go out,” Beltran said.

Henares agreed, adding even these high-earners can easily claim deductions which, in effect, lower their taxable income down the bracket.

 “This is the reason why we want a comprehensive tax reform. Ideally, you reduce income taxes across-the-board and get additional revenues elsewhere,” she said.

But industry group Tax Management Association of the Philippines has an opposite view.

“I don’t think it will deter investments so long as your top rate is competitive with those of the rest in the region,” said president Benedict Tugonon in a phone interview.

According to Department of Finance data, the Philippines’ top individual tax rate of 32 percent is higher than those in Indonesia (30 percent), Malaysia (25 percent), Singapore (20 percent) and Hong Kong (15 percent).